Trade Gap Widens In October - December 11, 2012

The U.S. trade gap widened during October, coming in at a largely on target $42.2 billion for the month. That was slightly ahead of the consensus forecast of $42.1 billion. However, it was notably higher than the September reading of $40.3 billion, a figure, which was revised downward from an initially estimated $41.6 billion.

The principal impetus for the widened shortfall was a record trade deficit with China. Also, fuel consumption and energy prices rose. That combination largely accounted for the greater deficit in the month.

In all, the deficit with China rose 1.4% to a record $29.5 billion. The increase in the trade shortfall with that nation, which came in spite of a 23% surge in exports to that fast-developing economic powerhouse, is likely due to heighten political opposition to China in this country, amid a pedestrian economic recovery in our own nation. Our sense is that the U.S. gross domestic product, which rose by a respectable 2.7% in the third quarter, will ease back noticeably in the current stanza, most likely gaining just 1.0% to 1.5%, with the risk to the downside in that expectation. Hurricane Sandy, listless retail and consumer spending, and a likely drawdown in inventories seem likely to lead to the slowdown in growth.

Meanwhile, the trade deficit with Japan also soared, jumping by 45%, as imports rose and exports faltered. However, the trade gap with Japan is less than a quarter of what it is with China and, consequently, much less of a political issue. The trade deficit with the troubled euro zone also increased last month, jumping by more than 16%. On the other hand, the shortfall with Mexico declined on the strength of a better-than-20% increase in exports to that nation.

Additionally, aggregate exports fell in our country by 3.6% in October, to $180.51 billion. That decline outpaced the 2.1% pullback in imports in that month, to $221.75 billion.

All in all, this was not a confidence-building report, and as exports add to economic growth in our country and imports subtract from it, the latest trade news will further restrain GDP growth in the current three months.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.